Global Media Report. Global Industry Overview

Transcription

1 Global Media Report 204

2 Global Industry Overview

3 McKinsey & Company Global Media Report 204 In today s rapidly changing media landscape, a comprehensive view of the industry of current trends across sectors and geographies around the world has become essential. Even as broadband and the Internet become ubiquitous and the shift from traditional to digital media gains a foothold in even the least developed regions, new technologies, business models, and social media developments are introducing further shifts in both mature and developing markets. Our second annual Global Media Report offers both high level data and a granular look at the media industry around the world across 45 countries and 2 major media categories. The report covers data spanning 0 years: historical consumer media and advertising spend data from 2008 through 203, with forecasts from 204 through 208. It includes an analysis of the underlying trends as well as economic, demographic, behavioral, and technological factors driving the forecasts. McKinsey s Global Media & Entertainment Practice helps leading media companies address the industry s challenges including approaches for achieving sustainable growth, creating value from digital opportunities, enhancing consumer spend and advertising revenues, and transforming media processes. Our Global Media Report 204 is just one of the tools we have developed to help our clients better navigate this landscape. For further information please contact Global Media and Entertainment Practice Manager Sonja Murdoch at [email protected]

4 2 Global Media Report 204 We are pleased to present McKinsey & Company s Global Media Report 204. The report provides annual historical data from 2008 through 203, forecasts from 204 through 208, and an analysis of the underlying trends driving the forecasts. Data is provided on a country-by-country basis for 2 major media categories and numerous subcategories. North America United States Canada EMEA Western Europe Central and Eastern Europe Middle East/Africa Austria Greece Spain Czech Republic Israel Belgium Ireland Sweden Hungary Middle East/North Africa Denmark Italy Switzerland Poland South Africa Finland Netherlands United Kingdom Romania France Norway Russia Germany Portugal Turkey Asia Pacific Australia Indonesia Pakistan Taiwan China Japan Philippines Thailand Hong Kong Malaysia Singapore Vietnam India New Zealand South Korea Latin America Argentina Brazil Chile Colombia Mexico Venezuela Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria and the United Arab Emirates.

5 McKinsey & Company Global Media Report Data provided Digital Advertising Search Non-Video Display Video Display Classified Internet Advertising Mobile Advertising Broadband Fixed Broadband Spending Fixed Broadband Households Fixed Broadband Household Penetration Average Monthly Spending Per Fixed Broadband Household Mobile Internet Subscribers Mobile Internet Penetration Average Monthly Spending Per Mobile Internet Subscriber Mobile Internet Access Spending Total Households Population Television Advertising Free to Air Television Advertising Multichannel Television Advertising Online Television Advertising Mobile Television Advertising Mobile Television Users In-Home Entertainment Cable TV Households Digital and Analog Cable TV Households TV Households Cable TV Household Penetration Average Monthly Spending Per Cable Household Cable TV Subscription Spending Subscription Satellite Households Subscription Satellite TV Household Penetration Average Monthly Spending Per Satellite Household Subscription Satellite Spending IPTV Households IPTV Household Penetration Average Monthly Spending per IPTV Household IPTV Subscription Spending Video on Demand Through TV Subscription Providers Physical Home Video Sell-Through Physical Home Video Rentals Over-the-Top (OTT) Transactional Digital Video OTT Subscription Video-on-Demand Public Service TV Broadcasting

6 4 Audio Entertainment Consumer Magazines Consumer Books Recorded Music Sales Consumer Magazine Print Advertising Print Consumer Books Physical Recorded Music Unit Sales Consumer Magazine Digital Advertising Electronic Consumer Books Physical Recorded Music Average Price Consumer Magazine Per Issue Print Unit Circulation Physical Recorded Music Spending Print Unit Circulation Per Household Educational Publishing Digital Recorded Music Download Unit Sales Consumer Magazine Print Circulation Spending Print Educational Books Digital Recorded Music Download Average Price Consumer Magazine Per Issue Digital Unit Circulation Digital Learning Materials Digital Recorded Music Download Sales Consumer Magazine Digital Circulation Spending Digital Streaming Subscription Spending Video Games Ad Supported Digital Streaming Newspapers Boxed Console/Handheld Games Concerts/Music Festivals Daily Newspaper Print Classified Advertising Online Games Radio Advertising Daily Newspaper Print Retail Advertising Wireless Games Satellite Radio Subscriptions Daily Newspaper Print National Advertising Boxed PC Games Public Service Radio Broadcasting Daily Newspaper Digital Advertising Advertising Daily Newspaper Print Unit Circulation Boxed PC Games Cinema Daily Newspaper Print Circulation Spending Advertising Box Office Admissions Box Office Average Admission Price Box Office Spending Daily Newspaper Paid Digital Unit Circulation Daily Newspaper Digital Circulation Spending Cinema Advertising Out-of-Home Advertising Non-Digital OOH Advertising Digital OOH Advertising Digital OOH Advertising

7 McKinsey & Company Global Media Report Introduction The media industry is undergoing rapid change along the entire value chain, propelled by continuously rising consumer demand, digital technology, ubiquitious connectivity and evolving devices. Even as one form of media s growth slows or loses relative share, another takes its place, gaining our attention with new modes of digital interaction, mobility, or social networking. And, while technology has always been a driver of change in this sector increasing digitization has escalated the speed of its transformation. As a result, new trends are emerging at rapid speed around social media, mobile devices, wearables, cloud computing, real-time bidding, micro-transactions, and programmatic buying just to mention a few. These trends alter the way we access, consume, and pay for our media, creating endless consumer choices, from infinite device options to a choice of print vs. electronic, linear vs. on-demand, free vs. pay, own vs. rent, and transactional vs. subscription. Even when consumers choose to access their media for free, they will increasingly pay with their digital footprint as their online behavior is monitored and more and more advertising messages are often targeted in real time. The associated business model changes are profound, given that digital technology empowers companies to reduce the boundaries between the individual steps in the value chain: aggregators and content producers are pursuing direct-to-consumer opportunities, distributors are moving into content production, and hardware producers are offering integrated solutions combining devices, operating systems, and content access on one platform. Digital developments are also propelling the advertising industry, both in the largest categories and in a myriad of niches, from digital out-of-home to cinema and in-game advertising helped along by even the smallest economic improvement. In fact, digital advertising is soon projected to overtake TV advertising, a development perhaps unforeseen even ten years ago. Not all these new trends, technologies, and business models will survive, but many are here to stay and some will disrupt the media value chain. What does it mean for the industry? While there are plenty of challenges arising from digitization, some of the most pressing include: Growing complexity along numerous dimensions. Audiences are fragmenting and media companies will need to expend more effort to attract and manage these audiences, along a plethora of platforms and content owners. Advertisers are increasingly valuing deep engagement and an audience niche over pure volume. Sophisticated editorial processes, content management, and cross-channel audience measurement will be essential to success. Digital technology empowers consumers, giving them more control over their media consumption and their information sources. Depth of content and flexibility is driving engagement and loyalty as users often choose to spend more time exploring content from fewer providers. Yet, many media companies have not taken the opportunity to offer customized products and solutions to their audiences in this digital world. Thinking beyond the traditional content bundle or subscription and offering à la carte options may be a necessity to create sustainable business models of the future. Building sustainable, truly vertically integrated value chains might become a reality. A number of media owners who control consumer access platforms have shown an appetite for moving into content provision, whether by acquiring rights, a pre-existing library or acquiring content production. These players potentially have the power to disrupt the more traditional author-producer relationship. In response, we believe that incumbents will likely need to defend their turf, continuing to invest in creative development and talent acquisition. Managing big data and understanding the implications will become a critical advantage. There are many opportunities for media companies to capture data to use it for the benefit of both themselves and their audience. For example, a print media business can benefit from predictive churn analysis, cable operators can use data to optimize bundled offerings, and content producers may draw conclusions for the development of new commissions by analyzing viewer data. While media companies have a vast amount of consumer data at their disposal, understanding and analyzing the data efficiently and effectively will be pivotal to success for some. Creating authentic experiences continue to matter, even in a digital world. Perhaps not surprisingly, we still have a positive outlook for those media companies that are involved in live or events-based

8 6 businesses. There are many examples, from the steady growth of concerts and festivals to strong box office performance. In spite of the threat of OTT, live TV shows are extremely popular in many countries, not to mention sporting events, which tend to have powerful audience appeal and strong brand impact. Where possible, media companies should take advantage of the live phenomenon and provide consumers with unique and premium experiences connected to their propositions experiences that are difficult to replicate in the digital world. As change continues and choices proliferate, the need for accurate and comprehensive information only grows. We hope that our Global Media Report 204, summarized here, will help companies better navigate the evolving media landscape and make the most appropriate choices for the future.

9 McKinsey & Company Global Media Report While there are large disparities between sectors and equally large disparities between regions, the global media industry as a whole has been remarkably stable over the past five years. Global spending rose 6.2 percent in 203, the fourth consecutive year of increases in the 5.9 to 6.5 percent range. We forecast that global growth to remain stable over the next five years, varying in the 6. to 6.8 percent range, with an overall compound annual increase of 6.4 percent to 208. Current state of the sectors Looking across the global media industry, many of the disparities in sector growth are explained by the ongoing transition towards digital provisional spend. Digital advertising and broadband were the fastestgrowing segments in 203, increasing 8.5 percent and 2.8 percent, respectively, followed by video games at 9.9 percent. Both digital advertising and broadband are entirely digital and video games are largely digital, while out-of-home advertising at 5. percent, the only other segment to grow by more than 5 percent in 203 is benefiting from the expanding footprint of digital boards. By contrast, the print-oriented segments were the weakest performers. Consumer magazine publishing and newspaper publishing each declined in 203, while educational publishing and consumer books rose by.5 percent or less. Taken together, the four print-oriented segments fell by.4 percent. The remaining segments expanded at modest rates in 203. TV advertising, audio entertainment, and cinema each rose by 3 percent or more, while in-home video entertainment grew by 4.6 percent. Outlook for sector spending We expect digital advertising, broadband, and video games to continue to lead the way as the fastestgrowing segments over the next five years, with projected compound annual increases to 208 of 5. percent, 9.6 percent, and 9.3 percent, respectively. TV advertising, out-of-home advertising, and cinema will be the only other categories to grow by more than 5 percent on a compound annual basis. The print-oriented segments will remain the weakest over the next five years. Consumer magazines will be lower in 208 than in 203, while educational publishing, consumer books, and newspaper publishing will grow at compound annual rates of.0 percent or less. Nonetheless, taken together, the four print-oriented segments will increase at a 0.3 percent CAGR over the next five years, an improvement compared with the past five years, when combined spending for the these four segments fell at a 2.2 percent CAGR. Our expectation that these segments have bottomed out, reflect their expanding digital revenues as well as slower declines in the print market. In fact, consumer books and educational publishing posted small increases in 203, and by 206, we project newspapers and consumer magazines to return to growth.

10 8 Total global media spending will rise from US $.6 trillion in 203 to a projected US $2. trillion in 208, a 6.4 percent increase compounded annually. Total global spending by category (US $ millions) Category p CAGR CAGR Digital Advertising 59,69 6,870 73,447 88,035 03,806 23, ,259 67,755 93,30 220, ,66 5. Broadband 26, , ,89 327, ,450 42, ,6 52,22 560,834 62,32 666, TV Advertising 53,350 42,37 58,924 66,564 75,770 8, , ,32 220,74 230, ,0 6.7 In-Home Video Entertainment 229, , , , , , ,490 3,68 325, , ,2 4.6 Audio Entertainment 97,77 92,487 9,08 92,385 93,567 96, ,376 98,009 00,337 02,965 06,049.9 Cinema 28,333 3,087 32,870 33,42 35,94 37, ,84 4,226 43,383 45,629 47, Out-of-Home 29,809 26,057 28,304 29,062 30,270 3, ,604 35,496 37,73 39,997 42, Consumer Magazine Publishing Newspaper Publishing Consumer Books Educational Publishing 77,97 68,638 68,689 68,088 66,225 64, ,652 62,04 62,7 62,749 63, ,597 59,632 60,97 60,366 56,70 52, ,490 5,70 5,596 52,534 54, ,47 70,898 7,024 70,674 70,574 7, ,958 72,532 73,30 73,635 74, ,74 39,37 40,357 40,877 40,072 40, ,44 42,290 42,623 42,778 42,820.0 Video Games 54,8 54,855 57,48 60,42 63,698 70, ,455 85,284 93,285 0,308 09, Total,228,742,220,463,299,0,383,77,465,057,555,35 4.8,657,096,757,935,877,723,994,064 2,24, At average 203 exchange rates. Note: Television, audio, newspaper, and consumer magazine mobile advertising are included in their respective segments and also in the digital advertising segment, but only once in the overall total. Current state of the regions Among the different regions, the media industries in Latin America and Asia Pacific have been the fastest-growing for years and continued to be so in 203, with Latin America increasing 9.7 percent and Asia Pacific rising 8.4 percent. High inflation in some countries and expanding economies have fueled growth in the region, although the gain in 203 Latin America was actually the lowest of the past five years as the Brazilian economy weakened somewhat. In Asia Pacific, 53 percent of the increase in 203 was generated by China; excluding China, growth for the region was 5.7 percent. In contrast, EMEA has been the weakest region, growing 2.7 percent as a whole in 203. Western Europe has fared the worst, continuing to lag behind the rest of the world in 203, with a.2 percent gain that was well below the global average. This gain represented only a modest improvement from the area s 0.5 percent advance in 202. The rest of EMEA has fared much better, however, with Central and Eastern Europe rising by 8.7 percent in 203, largely based on strong growth in Russia and Turkey, while the Middle East/Africa grew 0.9 percent. The North American media market grew 6.8 percent in 203, its largest gain in the past five years, driven by strong increases in digital advertising and broadband connectivity. Excluding those segments, spending in North America rose only percent.

11 McKinsey & Company Global Media Report Outlook for regional spending We expect Latin America and Asia Pacific to continue to be the fastest-growing regions over the next five years, with compound annual increases of 0.9 percent and 7.7 percent, respectively. As a result, Latin America and Asia Pacific together will account for 43 percent of total global spending by 208, up from 40 percent in 203. EMEA as a whole will continue to be the slowest-growing region, rising at a projected 4.8 percent compound annual rate to 208. Western Europe will increase just 3.4 percent compounded annually, although this growth will be an improvement over the past five years, as economies in the area are finally beginning to pick up. Stronger increases are expected in Central and Eastern Europe and the Middle East/Africa, with CEE rising 8.5 percent and MEA increasing 3.2 percent compounded annually. We expect the North American media industry to grow at a slightly slower pace of 5.4 percent compounded annually from 203 to 208 as digital advertising and broadband markets continue to penetrate and growth begins to moderate, although helped to some degree by improving economic conditions. These forecasts do not take into account political developments that could affect the economy and media spending. In Russia, for example, the prospect of sanctions could lead to a sudden slowdown in the economy, its strength and duration depending on how many countries participate and the length and severity of such sanctions. Total global spending by region (US $ millions) Region p CAGR CAGR North America 395, ,690 39, , , , ,42 497,86 527,66 552,23 584, EMEA Western Europe Central and Eastern Europe Middle East/ Africa 37, , , ,785 39, , ,626 49, ,36 450,86 467, ,399 38,57 42,62 48,268 52,9 56, ,425 66,936 72,735 78,935 85, ,430 20,095 22,756 28,320 3,582 35, ,87 44,727 50,977 57,722 65, EMEA Total 430,55 424, , , , , ,922 53,02 558, ,843 68, Asia Pacific 346, , ,84 426, , , ,672 59, , , , Latin America 56,279 62,263 73,062 86,83 0,657, ,360 37,802 54,536 69,760 87, Total,228,742,220,463,299,0,383,77,465,057,555,35 4.8,657,096,757,935,877,723,994,064 2,24, At average 203 exchange rates.

12 0 Consumer spending Just as digital spending has driven the overall media market, it has also propelled consumer spending. Over the past five years, the digital components of consumer spending rose at a 5.0 percent CAGR compared with only 0.8 percent growth compounded annually for the traditional components of the market. We project digital consumer spending to continue to be the principal market driver, increasing by a projected 0.3 percent compounded annually to 208, compared with a.8 percent projected CAGR for traditional consumer spending. Digital consumer spending will overtake traditional consumer spending in 205 and will be 26 percent larger by 208. Consumer spending: traditional vs. digital (US $ millions) 900, , , , , , , ,000 00, Digital Traditional 2 Digital consists of spending on: broadband, transactional video-on-demand through TV subscription providers, OTT transactional digital video, OTT subscription digital video, digital recorded music downloads, digital recorded music-streaming subscriptions, consumer magazine digital circulation, daily newspaper digital circulation, electronic consumer books, digital learning materials, online video games, and mobile video games 2 Traditional consists of spending on: pay TV subscriptions, physical home video sales and rentals, public service TV and radio broadcasting, physical recorded music, concerts and music festivals, satellite radio subscriptions, box office, consumer magazine print circulation, daily newspaper print circulation, print consumer books, print educational books, and boxed-console and PC video games Looking at individual segments, broadband is the dominant driver of consumer spending, accounting for 69 percent of the total increase in 203 worldwide. While overall consumer spending rose 6.8 percent in 203, the market rose by only 3.4 percent if we exclude broadband. Going forward, we project broadband spend to grow at a 9.6 percent compound annual rate over the next five years, generating 65 percent of the total projected growth in consumer spending. We expect a healthy increase in video games as well, up by 8.9 percent compounded annually to 208, fueled by growing online and mobile-games markets and a new generation of consoles. Cinema will advance at a 5. percent compound annual rate, in large part due to new screens and an expanding box office market in China. The remaining categories will achieve less than 5 percent growth compounded annually.

13 McKinsey & Company Global Media Report 204 Global consumer spending by category (US $ millions) Category p CAGR CAGR Broadband 26, , ,89 327, ,450 42, ,6 52,22 560,834 62,32 666, In-Home Video 229, , , , , , ,490 3,68 325, , ,2 4.6 Audio 65,36 64,580 6,396 62,89 62,867 65, ,742 65,567 66,948 68,524 70,442.4 Cinema 26,40 29,96 30,794 3,258 33,639 34, ,736 38,627 40,593 42,636 44, Consumer Magazines 44,246 42,099 4,365 40,670 39,707 38, ,380 36,963 36,96 37,275 37, Newspapers 7,997 7,334 7,958 72,042 72,63 7, ,880 72,359 73,02 73,932 75,224.0 Consumer Books Educational Publishing 7,47 70,898 7,024 70,674 70,574 7, ,958 72,532 73,30 73,635 74, ,74 39,37 40,357 40,877 40,072 40, ,44 42,290 42,623 42,778 42,820.0 Video Games 53,549 53,423 55,734 58,48 6,495 67, ,023 8,0 88,350 95,652 02, Total 89, ,68 899, ,94,024,557,094,38 5.9,62,234,232,837,308,358,387,438,469, At average 203 exchange rates. Among regional growth trends, in Latin America, Central and Eastern Europe, and Middle East/Africa, consumer spending will grow faster than overall spending (which includes advertising spend) over the next five years, driven in large part by rapid growth in broadband, as these regions currently have less-developed broadband infrastructure. In North America, Western Europe, and Asia Pacific, by contrast, consumer spending will grow more slowly than overall spending, in large part reflecting maturing and more penetrated broadband markets. Overall consumer spending will rise at a 6. percent CAGR to US $.5 trillion in 208, up from US $. trillion in 203. Within this, Latin America and Asia Pacific will be the fastest-growing regions, and Western Europe will be the slowest-growth region, while Central and Eastern Europe and Middle East/Africa will outpace Western Europe, as will North America. Despite lagging behind the rest of the world, however, we do expect consumer spending in Western Europe to grow more quickly over the next five years as the economy improves, as will spending in North America. In contrast, growth in the remaining regions and areas will moderate despite the improving economy as they begin to come out of the broadband and digital development stage characterized by high percentage increases from a small base and markets begin to mature.

14 2 Global consumer spending by region (US $ millions) Region p CAGR CAGR North America 232, , , , ,2 28, ,92 3, ,978 34, , EMEA Western Europe Central and Eastern Europe Middle East/ Africa 266,805 27, , ,702 29, , , ,58 39, , , ,665 27,437 30,42 34,73 37,088 40, ,784 47,832 5,980 56,460 6,8 8.7,238 2,977 4,93 20,79 23,852 26, ,869 35,72 40,640 46,747 53, EMEA Total 303,708 32, ,22 342, ,68 362, , ,522 4, , , Asia Pacific 246,8 26,80 284, , ,99 369, ,58 428, , , , Latin America 37,708 43,306 50,69 6,85 73,809 80, ,867 00,967 2,238 23,952 36,326.0 Total 89, ,68 899, ,94,024,557,094,38 5.9,62,234,232,837,308,358,387,438,469, At average 203 exchange rates. The advertising market Economic sensitivity. Advertising is highly sensitive to the economy, generally growing more slowly than the market as a whole when the economy is weak and faster than the market when the economy is strong. Over the past five years, the 2.4 percent compound annual increase globally experienced in advertising was well below the 4.5 percent compound annual growth in nominal GDP. With the global economy now expected to improve over the forecast period, we anticipate a concomitant improvement in advertising growth. We project global advertising to increase at a 7.3 percent compound annual rate, a bit faster than the projected 6.4 percent CAGR for nominal GDP.

15 McKinsey & Company Global Media Report Compound annual growth in global advertising and global nominal GDP Global Advertising Global Nominal GDP Regional growth. Regions with the strongest economic growth Latin America, Asia Pacific, and EMEA, excluding Western Europe will also have the strongest advertising growth. These areas accounted for 42 percent of global advertising in 203, but will generate 56 percent of the total increase in global advertising over the next five years, with spending rising at a 9.3 percent compound annual rate. In Western Europe, advertising will grow at just over half that rate 4.7 percent compounded annually while advertising in North America will expand at a 6.3 percent CAGR, enhanced by an influx of sports and political advertising in 208.

16 4 Global advertising by region (US $ millions) Region p CAGR CAGR North America 62,876 39,435 48,840 54,026 63,029 67, ,22 86,54 20,88 20, ,9 6.3 EMEA Western Europe Central and Eastern Europe Middle East/ Africa 04,97 93,922 99,99 02,083 99,986 00, ,99 09,83 5,246 20,857 26, ,734,34 2,470 4,095 5,03 6, ,64 9,04 20,755 22,475 24, ,92 7,8 7,825 7,60 7,730 8, ,002 9,555 0,337 0,975, EMEA Total 26,843 2,74 20,24 23,779 22,89 25, ,634 38,490 46,338 54,307 63, Asia Pacific 00,509 96,279 07,777 7,496 26,804 37, ,54 63,232 79,54 95,933 24, Latin America 8,57 8,957 22,37 24,962 27,848 30, ,493 36,835 42,298 45,808 50, Total 408, , , , , , , , , , , At average 203 exchange rates. Digital expansion. Digital advertising is becoming a dominant force in the global media advertising market. Excluding the online and mobile components of TV advertising, in 207 digital advertising will overtake TV, which for decades has been the largest advertising medium, and by 208 digital advertising will be 8 percent larger. Even including the digital components in TV advertising totals, digital advertising will nearly reach overall TV advertising levels by 208. We project digital advertising to continue to increase at double-digit rates, growing 5. percent compounded annually to 208 and accounting for 65 percent of the total increase in global advertising over the next five years. Most of that gain will come as advertisers substitute away from print media. Even including its digital components, we project global consumer magazine advertising to be flat and global newspaper advertising to be lower in 208 than in 203. The overall advertising market will grow from US $46 billion in 203 to a projected US $655 billion in 208. Not counting the online and mobile advertising included in other categories, digital advertising will generate 38 percent of total advertising in 208, up from 26.7 percent in 203.

17 McKinsey & Company Global Media Report Global advertising by category (US $ millions) Category p CAGR CAGR Digital 59,69 6,870 73,447 88,035 03,806 23, ,259 67,755 93,30 220, ,66 5. Television 53,350 42,37 58,924 66,564 75,770 8, , ,32 220,74 230, ,0 6.7 Audio 32,40 27,907 29,72 30,96 30,700 30, ,634 32,442 33,389 34,44 35, Cinema,923,89 2,076 2,63 2,275 2, ,448 2,599 2,790 2,993 3, Out-of-Home 29,809 26,057 28,304 29,062 30,270 3, ,604 35,496 37,73 39,997 42, Consumer Magazines 32,95 26,539 27,324 27,48 26,58 25, ,272 25,4 25,255 25,474 25, Newspapers 06,600 88,298 89,03 88,324 84,547 8, ,60 78,8 78,575 78,602 78, Video Games,262,432,684,93 2,203 2, ,432 4,74 4,935 5,656 6, Total 408, , , , , , , , , , , At average 203 exchange rates.

18 6 Global advertising shares by category (percent) Category p Digital Television Audio Cinema Out-of-Home Consumer Magazines Newspapers Video Games Does not include online or mobile advertising. 2 Print only. TV vs. digital. Despite the rapid growth of digital, television s share of total advertising continues to hold up at 37.7 percent in 203, up from 37.0 percent in 2008, although down from the five-year peak of 39.0 percent in 200. Looking only at non-internet advertising, in fact, television is a relative stalwart. Its share of non-digital advertising increased from 43.4 percent in 2008 to 5.5 percent in 203 and is projected to rise to 56.6 percent by 208. Viewing time and audience reach for the media overall have been fairly stable, which has helped sustain advertising spend levels. Global non-internet advertising shares by category (percent) Category p Television Audio Cinema Out-of-Home Consumer Magazines Newspapers Video Games Does not include online or mobile advertising. 2 Includes digital out-of-home advertising. 3 Print only. As digital growth continues apace, we project TV s share to drop to 35. percent by 208. Newspapers will experience the largest share decline, however, falling from 5.9 percent in 203 to 0.5 percent in 208. Audiences are essential. The share of total advertising for out-of-home has also increased, buoyed by the growth in digital assets that are increasing the effective inventory and expanding the reach of out-of-home advertising to more locations. We expect further share gains during the next five years as the reach of OOH advertising continues to expand. We also look for share gains for the small video games and cinema advertising markets, while shares for audio entertainment and the print media will decline.

19 McKinsey & Company Global Media Report Key global drivers. Digital spending will fuel overall growth. The digital share of total media spending rose from 25. percent in 2008 to 40. percent in 203. Over the next five years, we project digital spending to grow another.4 percent compounded annually, generating 78 percent of the projected increase in total media spending over that period. Concurrently, the non-digital component of the market will expand at only a 2.5 percent CAGR. As a result, digital spending is projected to make up a majority of total global media spending by 208 with 50.3 perecent. Global spending by digital/non-digital status (US $ millions) Status p CAGR Digital 2 308, , ,87 470,05 543,95 624, , , ,022 97,63,069,25.4 Non-digital 920, ,7 90,293 93,26 92,06 93, ,56 970,293,000,70,022,90,055, Total,228,742,220,463,299,0,383,77,465,057,555,35 4.8,657,096,757,935,877,723,994,064 2,24, At average 203 exchange rates. 2 Consists of online and mobile advertising, broadband, transactional video-on-demand through TV subscription providers, OTT transactional digital video, OTT subscription digital video, digital recorded music downloads, digital recorded music streaming subscriptions, digital out-oh-home advertising, consumer magazine digital circulation spending, daily newspaper digital circulation spending, electronic consumer books, digital learning materials, online video games, mobile video games CAGR 00,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 0,000 0 Digital share of total spending (USD millions, percent)

20 8 We note that in video games, the digital components online and mobile games already dominate the market. Spending on these digital components overtook spending on the physical components boxed console and PC games in 20 and in 203, accounted for 67 percent of total consumer spending on video games. By 208, online and mobile games will make up 86 percent of the consumer video games market. 00,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 0,000 0 Consumer spending on video games (US $ millions) Boxed Console/ Pc Games Online/ Mobile Games In recorded music, the market is still in transition from physical to digital. However, digital spending digital downloads, digital streaming subscriptions, and ad-supported digital streaming will overtake physical distribution in 205 and will account for 56 percent of total recorded-music spending by 208. Recorded music spending by digital/non-digital status (US $ millions) 25,000 20,000 5,000 0, Physical Digital

21 McKinsey & Company Global Media Report Improving economies will lead to faster media growth. As noted the global media market is sensitive to the economy. Relatively weak economic growth over the past five years in North America and Western Europe, for example, has been associated with slow growth in media spending in those areas. Globally, media spending has risen at a 4.8 percent CAGR over the past five years, comparable to the 4.5 percent compound annual increase in nominal GDP over the same period. During the next five years, we expect global nominal GDP growth to improve to 6.4 percent on a compound annual basis. Not surprisingly, we expect media spending to improve as well, matching the increase in global GDP growth. Global compound annual media spending and nominal GDP growth (percent) Global Media Spending Global Nominal GDP 3. Advertising will generate most of the improvement in media growth. Advertising is the more cyclically sensitive component of media spending and has been the sector most affected by the weak economic climate, rising at only a 2.4 percent CAGR over the past five years, well below the 5.9 percent CAGR for consumer spending. During the next five years, we project that advertising growth will improve to 7.3 percent compounded annually, benefiting from stronger economic growth. While consumer spending, which has been less affected by the weak economy over the past five years, will benefit less from the stronger economy over the next five years. As a result, growth in consumer spending will improve by only a projected two-tenths of a percentage point, growing 6. percent compounded annually to 208. In contrast with the past five years, therefore, advertising will be the faster-growing category over the next five years.

22 20 Global advertising and consumer spending growth (percent) Status p CAGR CAGR Advertising Consumer spending Total Access to content is replacing ownership of content. Consumers are spending less to buy and own content, while spending more to gain access to content. In home video, physical sales are falling, while digital streaming is rising. In recorded music, consumers are not only buying less music in physical formats, but they are also cutting back on digital downloads, shifting their spending to streaming subscriptions and increasing their usage of ad-supported streaming services. With video games, free-to-play games are gaining share, funded by in-game upgrades, microtransactions and advertising. In fact, spending on access in the recorded music and home video categories represented only 2 percent of spending on ownership in 2008, but by 203 that share had risen to 2 percent. By 208, we project that the share of spending on access will have jumped to 7 percent. 70,000 Ownership vs. Access 60,000 50,000 40,000 30,000 20,000 0, Ownership Access Sources: Note: Ownership McKinsey & consists Company, of Wilkofsky home video Gruen physical Associates sales, physical recorded music sales and recorded music digital downloads. Access consists of OTT digital video, recorded music digital subscriptions and recorded music ad-supported digital streaming.

23 McKinsey & Company Global Media Report Rising tablet and smartphone penetration will continue to drive mobile spending. The mobile components of the global media market are booming. Global mobile advertising rose 83.9 percent in 203 and will increase by a projected 34.5 percent compounded annually over the next five years. After rising 9.2 percent in 203, spending on mobile Internet access will also continue to expand at double-digit annual rates, rising by an estimated.6 percent compounded annually through 208. Three key trends are fueling this growth: still increasing penetration of tablets and smartphones, enabling easier internet browsing; upgrades in wireless infrastructure that enable faster connectivity; and continued growth in a number of applications for mobile. 5,000 4,500 4,000 3,500 3,000 2,500 2,000,500, Index of mobile broadband and mobile advertising spending (2008=00) Mobile Broadband Mobile Advertising

24 22 6. Consumer spending on print media will continue to support the market. Much of the attention in the media industry is focused on the more vibrant parts of the industry box office, recorded music, concerts, video games, and home video and on the growing digital components of the print media electronic books and digital newspaper and magazine circulation. What can be forgotten is that consumer spending on print media is still formidable. In fact, consumers spent more on print newspapers in 203 than they did on video games, home video, box office, recorded music, or concerts. Consumer-book print spending was also well above spending for the home video, box office, recorded music, or concert markets. In addition, spending on the four print media newspapers, consumer books, educational books, and consumer magazines taken together exceeded total spending on TV subscriptions in 203. Global consumer spending by selected categories, 203 (US $ billions) Total Print TV subscriptions Global Advertising Print Newspapers Video Games Global Nominal GDP Print Consumer Books Home Video Print Educational Books Print Consumer Magazines Box Office Concerts/ Music Festivals Recorde Music In contrast to print advertising, which has fallen at a 6. percent compound annual rate over the past five years, print consumer spending has declined only.5 percent compounded annually. Going forward, these more moderate declines in print consumer spending will contribute to keeping overall consumer spending on media strong over the next five years especially in some countries like India (+5% p.a.) and China (+2% p.a).

25 McKinsey & Company Global Media Report Box office resilience will fuel consumer spending. Despite a shortening release window and the emergence of digital over-the-top home video alternatives, box office spending worldwide is flourishing, rising a cumulative 32.2 percent between 2008 and 203. We expect box office to continue growing apace, increasing by a cumulative projected 28. percent over the next five years due to the digitization of cinemas and growth in the number of screens in some countries. Simultaneously, we note that home video spending is declining as that market shifts from higher-priced physical formats to lower-priced digital formats. While box office spending was 44 percent smaller than home video spending in 2008, that gap narrowed to 2 percent in 203. We project box office to overtake home video in 206 and to be 5 percent larger by 208. Box office and home video spending (US $ millions) 50,000 45,000 40,000 35,000 30,000 25,000 20, Home Video Box Office

26 24 Methodology for Recent trends in industry performance are analyzed, and the factors underlying those trends are identified. The factors considered include economic, demographic, technological, institutional, behavioral, and competitive factors, as well as other factors that may affect each of the entertainment and media markets. Models are developed to quantify the impact of each factor on industry spending. A forecast scenario for each causative factor is then created, and the contribution of each factor on a prospective basis is identified. Spending is counted at the consumer or end-user level, not at the wholesale level, and includes retail markups when applicable. Advertising spending is measured net of agency commissions. In addition to annual spending figures, we also present data that is measured at a single point in time, such as TV subscriptions, Internet subscriptions, mobile subscriptions, and newspaper unit circulation. In those instances, we show annual averages rather than year-end totals, as annual averages more accurately represent the impact of these figures on annual spending. Figures are reported in nominal terms, reflecting actual spending transactions and, therefore, include the effects of inflation. Because all figures are shown as actual spending, with the effects of inflation included, nominal GDP growth has an important influence on media spending. Figures are estimated in local currencies for each country and then converted to US dollars using the average 203 exchange rate, which is held constant for each historical year and forecast year. This means that the figures reflect industry trends, rather than being distorted by fluctuations in international exchange rates.

27 Global Media and Entertainment Practice September 204 Designed by VME London Copyright McKinsey & Company